Huge hikes loom for municipal pension funding

Share via e-mail

Some south suburbs are staring down the barrel of a massive increase in employee pension assessments for fiscal year 2015, numbers that many administrators say could cripple upcoming municipal budgets.

A vote by the Plymouth County Retirement Association’s board of directors, looking to set the funding schedule for pension costs, is expected on Tuesday, with many of the 55 members of the association vehemently opposed to the anticipated hikes.

“It’s making me very nervous,” said Marshfield Town Administrator Rocco Longo, whose town is facing a 23 percent increase in its assessed contribution, to $5.6 million, for fiscal year 2015, according to the most recent valuation. “If we don’t get some relief, we’ll have serious budget difficulties.”

The pension contributions are expected to rise 20 percent to 30 percent from FY2014 to FY2015 for the majority of the retirement association’s members, which include nearly every municipality in Plymouth County and several regional schools and housing authorities. Though the exact increases are still up for negotiation, many member communities will have to make cuts within their budgets to accommodate the assessments, or raise more revenue.

The assessments to association members are meant to help fully fund pension obligations for current retirees. Employees pay into the system, but according to retirement association officials, only 50 percent of the system is funded for all existing retirees, and members must bridge the funding gap by the year 2030.

Pushing back the deadline to fully fund existing obligations would ease the impact on member communities now. But Bill Farmer, executive director of the retirement association, said he sees such a move as only kicking the can down the road.

“There is a cost to them not paying the money up front,” Farmer said. “We need to come to some sort of reasonable figure in the middle.”

The association is willing to compromise, said Tom O’Brien, treasurer for Plymouth County and a voting member on the association’s five-person board. One option may be to bond the association’s unfunded liability and have members pay off the debt. A bill allowing such a move is seeking legislative approval.

More immediately, the association could elongate the funding schedule. But O’Brien, whose sympathy is tempered with the knowledge that member communities’ hiring and salary-increase decisions affect their assessments, cautioned that doing so may limit the association’s flexibility to respond to another downturn in the market.

Barbara Anderson, executive director of Citizens for Limited Taxation, placed blame with the cities and towns, saying she was grateful her organization had helped enact Proposition 2½, the state law that caps a municipality’s annual tax increase at 2.5 percent plus revenue from new growth.

“Taxpayers aren’t the ones insisting cities and towns create outrageous benefits for employees . . . but we wanted some protection when that day came,” she said.

The Plymouth County Retirement Association faced similar struggles in 2008 and 2011, and the deadline to fully fund the system was pushed back from 2028 to 2029, and again to 2030.

Now, the member communities are hoping to push out the funding schedule to 2034 or 2036. The state allows retirement associations to be fully funded as late as 2040.

The trouble, Farmer said, is that the association gave its communities minimal increases in assessments in years past to make up for the poor economy, with the expectation that a large makeup payment would be levied in the future.

“We told them two years ago the increase would be in excess of 20 percent,” Farmer said. “We only went up 4 percent last year. I could have given this [increase] last year. I gave them a break.”

For communities struggling to make ends meet, it’s been difficult to plan for such a large hike.

“Remember what the fiscal climate has been for the past four years, and most important the annual assessment for pension went up four of the last five years by significant amounts. Do the math,” said Scituate Town Administrator Patricia Vinchesi.

Scituate is facing a 23 percent increase in its assessment, to $4.5 million in fiscal year 2015. The approximately $75,000 put away in fiscal year 2014 is far from enough. Meanwhile, hundreds of thousands of dollars in recent storm cleanup costs ate up further savings in the town.

“There needs to be a reality check,” Vinchesi said.

Pembroke Town Administrator Edwin Thorne also said he wants the funding schedule pushed out to 2034. That could reduce the town’s anticipated 22 percent increase in FY 2015 to 14 percent, he said, but increase several payments in future years or leave a balloon payment at the end.

In Bridgewater, which is facing a 26 percent increase in assessment from $2.7 million to $3.4 million, the hope is to push out the deadline to 2036. The current one-year hit in pension costs could mean laying off 10-12 municipal employees, Town Manager Michael Dutton said. .

Norwell Town Administrator James Boudreau said many communities are fully aware of how new employees add to the pension cost. But even with that understanding, Norwell’s assessment hike of 23 percent is too high, he said.

Still, Boudreau was optimistic about a compromise. “We want an option that can reduce this spike and give us predictability going forward,” he said.

Plymouth County is not alone in the struggle. Norfolk County is just beginning a discussion on what new mortality rates, or longer life expectancies, will do to retirement costs.

But even with the unknown, Norfolk County Treasurer Joseph Connolly said he was strongly opposed to the large increases Plymouth communities could face.

Connolly said he and the 42 member communities in the Norfolk County pension system will sit down with the new actuary report and work out the numbers to its 2031 funding goal. That funding schedule deadline was changed in 2010 to accommodate the 2008 economic troubles.